Many contractors, subcontractors and suppliers are suffering at the hands of those who fail to pay for the work or materials they supply to construction projects. This is a brief outline of ten tips to keep in mind when dealing with delinquent construction accounts.
Many businesses are surprised to learn that there is a Bankruptcy Code provision, commonly referred to as the “Preferential Payment Rule,” which generally provides that where a debtor makes a payment to a creditor and the debtor files bankruptcy within 90 days thereafter, the creditor can often be forced by the Bankruptcy Court to pay all the sums paid by the debtor back into the bankruptcy estate for distribution to general creditors. When the creditor is an “insider” with the debtor the time period increases from 90 days to one year. This Rule is found in U.S. Bankruptcy Code section 547. The impact of this rule is often devastating to those who have received payment and disbursed it to their own creditors and no longer have the funds to pay to the bankruptcy court.
nder laws which took effect on January 1, 2011, claimants who seek to obtain payment for construction related debts through the California mechanic’s lien procedure must follow new rules and use new forms. Failure to do so will likely result in an unenforceable mechanics lien. There are a number of reasons that the law was changed. For example, until this change, there was no requirement that a mechanic’s lien claimant actually inform the property owner that the claimant has recorded a mechanic’s lien on the owner’s property. There was also no requirement that a mechanic’s lien claimant inform an owner of exactly what a mechanic’s lien is or that the owner may be sued within 90 days to foreclose on the mechanic’s lien and sell the owner’s property to pay the unpaid debt. Property owners had long complained that, until they received the mechanic’s lien foreclosure lawsuit, they were often entirely unaware that a mechanics lien had even been recorded on their property. The owner asserted that if he/she had known that a mechanic’s lien had been recorded, he/she could have acted to resolve the matter before a lawsuit became necessary. This was a particularly common complaint in the residential construction industry where homeowners are generally unaware of the entire concept of a mechanic’s lien.
For many years the prevalence of the “Type 1” indemnity clause has been the subject of fierce debate within the construction industry. Subcontractors have complained that they are saddled with indemnity obligations that require them to indemnify contractors from construction-related claims for which these subcontractors are truly not responsible. In defense, contractors have argued that they must be entitled to the freedom to set contractual terms to best protect themselves and they point out that subcontractors are certainly free to negotiate better terms or turn down work.
Important Changes to California Construction Forms Beginning on July 1, 2012: The Impact of 2010 Senate Bill 189
The most important changes to California construction law in decades will become effective on July 1, 2012. Signed into law in 2010, Senate Bill 189, reorganized and renumbered all those California Civil Code provisions dealing with such familiar construction claim remedies as the Mechanics Lien, Stop Notice and Bond Claim. While this effort greatly simplified the legal rules and made them easier to follow, there are a number of important substantive changes to these laws. These changes include new definitions, new rules and new procedures found in new Civil Code Sections 8000 to 9566. These changes also mean that new forms will be necessary. As a result of these changes, all those in the construction industry should begin using the new forms and procedures beginning on July 1, 2012. Failure to do so could result in loss of important legal rights. Some of the most important changes to the forms are outlined below. A website to access the new forms free of charge is also identified below.
Another costly new regulation is heading our Industry’s way early next year. The Sacramento Air Quality District (AQMD) has recently released a proposal that would force every construction project (Over 2,000 sq ft Commercial) to reduce their total project baseline carbon emissions by 20% Nitrate Oxide (NOx) and by 45% Particulate Matter (PM 10). Submittals of full equipment lists, project durations, and the size of the job-site are all necessary for the Air Board’s “scientific determination” of whether a project has met its carbon emission targets. If companies do not meet the stringent new guidelines, they will be required to pay a fee ranging from a minimum of $16,400 to a maximum of $38,960 per ton of (NOx). Particulate matter will also be charged via Cap & Trade, but this fee has not yet been released to the public.
Owners and Contractors are Liable for Injuries Caused by their Independent Contractors under the “Peculiar Risk Doctrine”
Many contractors and owners believe that if they hire an independent contractor to perform work and that independent contractor causes injury to others during the performance of that work, then it is the independent contractor alone who will be liable for those injuries. In most circumstances, this is correct. The owner or the contractor will not be held liable for injuries caused by his or her independent contractor. However, this is not always the case.
Those contractors who from time to time contract with Indian tribes* might take notice of a case from the United States Supreme Court. In 1998 the U.S. Supreme Court issued a decision in Kiowa Tribe of Oklahoma v. Manufacturing Technologies, Inc. 523 U.S. 751 (1998). The facts are as follows: Manufacturing Technologies, Inc., entered into a stock purchase contract with the Kiowa Tribe. The transaction was secured by a promissory note. The tribe defaulted on the note and Manufacturing Technologies sued in Court for breach of contract.